Cambridge capital controversy

The Cambridge capital controversy, sometimes called "the capital controversy" or "the two Cambridges debate", was a dispute between proponents of two differing theoretical and mathematical positions in economics that started in the 1950s and lasted well into the 1960s. The debate concerned the nature and role of capital goods and a critique of the neoclassical vision of aggregate production and distribution. The name arises from the location of the principals involved in the controversy: the debate was largely between economists such as Joan Robinson and Piero Sraffa at the University of Cambridge in England and economists such as Paul Samuelson and Robert Solow at the Massachusetts Institute of Technology, in Cambridge, Massachusetts, United States. The English side is most often labeled "post-Keynesian", while some call it "neo-Ricardian", and the Massachusetts side "neoclassical". Most of the debate is mathematical, while some major elements can be explained as part of the aggregation problem. The critique of neoclassical capital theory might be summed up as saying that the theory suffers from the fallacy of composition; specifically, that we cannot extend microeconomic concepts to production by society as a whole. The resolution of the debate, particularly how broad its implications are, has not been agreed upon by economists. In classical, orthodox economic theory, economic growth is assumed to be exogenously given: Growth is dependent on exogenous variables, such as population growth, technological improvement, and growth in natural resources. Classical theory claims that an increase in either of the factors of production, i.e. labor or capital, while holding the other constant and assuming no technological change, will increase output but at a diminishing rate that will eventually approach zero. The so-called natural rate of economic growth is defined as the sum of the growth of the labor force and the growth of labor productivity.

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